Editorial: Hike pension payment, hit reset button

Wednesday

May 27, 2009 at 12:01 AMMay 27, 2009 at 8:50 PM

Earlier this week, we recommended that the legislature pass a temporary tax increase to deal with the state’s $12 billion deficit. Part of the money raised must go toward the state’s pensions. Gov. Pat Quinn’s budget calls for shorting the system again by nearly $3 billion during this fiscal year and the next. The General Assembly has to do better.

Earlier this week, we recommended that the legislature pass a temporary tax increase to deal with the state’s $12 billion deficit. Part of the money raised must go toward the state’s pensions.

Gov. Pat Quinn’s budget calls for shorting the system again by nearly $3 billion during this fiscal year and the next. The General Assembly has to do better.

The system is already $73 billion in debt and in four of the last six fiscal years, the state either skipped or avoided making the payment as required by a schedule designed to make the system 90 percent funded by 2045.

Each time the state skips a payment, it owes 8 percent to 8.5 percent interest, which has led to the massive debt. Some believe the system could be bankrupt in a decade.

Quinn wants to save money on pensions by creating less-generous pension benefits for new employees. The General Assembly’s Commission on Government Forecasting and Accountability has warned against taking savings from that plan today.

If the assets are not there to make payments to retirees, a judge will surely order the General Assembly and the governor to raise taxes to pay them because payment is required by the constitution. Waiting for that to happen is supremely irresponsible.

Quinn could make more of the payment by forgoing the plan in his budget to triple the personal income tax exemption, which is designed to blunt the impact of increasing the income tax from 3 percent to 4.5 percent.

Quinn’s exemption costs $1.4 billion; instead, legislators should target a tax credit at the lowest income earners and put the revenue gained into pensions.

We have already recommended that the income tax increase sunset on July 1, 2011. Here’s why:

The recession has skewed the state’s revenue numbers for the worse. Who knows what they would be in a normal economy? Who knows what kind of economic growth can be expected from now on once the recession ends?

In the last five months, legislators and the governor also either have failed or not had time to fully explore and enact cost-saving and revenue-generating measures, including:

* Creating a bipartisan panel with both government and business officials that would recommend program cuts and ways for state government to be more efficient. It could start by examining the 750 positions set to be fumigated. Legislators should take a single vote on the all the commission’s recommendations, similar to the federal military base-closing commissions.

* Refinancing the pension debt and extending the payment schedule beyond the unrealistic-from-the-start 2045 deadline, which could ensure practical year-to-year payments. If such a plan is adopted, lawmakers should also OK a constitutional amendment requiring a two-thirds vote by future legislatures to deviate from that schedule.

* Repairing the school-funding system and Illinois’ regressive tax system, which is too dependent on property and sales taxes. Making the tax sunset would allow the governor and the General Assembly time to put a constitutional amendment on the 2010 ballot allowing for a graduated income tax and to deal with declining sales tax revenue.

* Managed care for the state’s Medicaid system.

Making the tax expire would give the governor and the General Assembly two years and a chance, for once, to take a long-term view of the state’s problems. It is a chance to get through this crisis and hit the reset button.